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The Changing Microstructure of European Equity Markets

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Abstract
In the last decade, the increased competition between European stock exchanges has reduced the cost of trading and increased the variety of trading mechanisms. The London Stock Exchange, which initiated the competition in 1986 by setting up the SEAQ-I market, attracted considerable trading volume in Continental equities in the late 1980s. Later, however, Continental exchanges recovered most of the trading volume from London upon restructuring their auction systems so as to offer very low trading costs, greater transparency and continuous trading via an automated order book. At the same time, the spreads quoted by SEAQ-I dealers increased considerably. Lately, potential competition by continuous auction systems is threatening even the market for British equities, and prompting the London Stock Exchange to replace its former SEAQ system with an automated order book. As in Continental Bourses, this automated auction system is expected to run in parallel with a dealership market for large trades. So trading systems appear to be converging towards a dualistic structure all over Europe. The paper documents these developments, and considers how the competition between European exchanges is likely to evolve and which opportunities and dangers the future may hold for them.

Suggested Citation

  • Marco Pagano, 1998. "The Changing Microstructure of European Equity Markets," CSEF Working Papers 04, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    • Handle: RePEc:sef:csefwp:04
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    References listed on IDEAS

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    Cited by:

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    2. Goergen, M. & Khurshed, A. & McCahery, J.A. & Renneboog, L.D.R., 2002. "The Rise and Fall of the European New Markets : On the Short and Long-Run Performance of High-Tech Initial Public Offerings," Other publications TiSEM e9f084b3-1cf4-4632-abd6-8, Tilburg University, School of Economics and Management.
    3. Alexandros Gabrielsen & Massimiliano Marzo & Paolo Zagaglia, 2011. "Measuring market liquidity: An introductory survey," Papers 1112.6169, arXiv.org.
    4. Ben Slimane, FATEN, 2007. "L'Evolution des Marchés Boursiers Européens: Enjeux et limites [European Stock Market Evolution]," MPRA Paper 2607, University Library of Munich, Germany.
    5. Dewenter, Kathryn L. & Kim, Chang-Soo & Novaes, Walter, 2010. "Anatomy of a regulatory race to the top: Changes in delisting rules at Korea's two stock exchanges, 1999-2002," Journal of Corporate Finance, Elsevier, vol. 16(4), pages 456-468, September.
    6. Stelios Katranidis & Theodore Panagiotidis & Costas Zontanos, 2014. "An Evaluation Of The Greek Universities’ Economics Departments," Bulletin of Economic Research, Wiley Blackwell, vol. 66(2), pages 173-182, April.
    7. Chelley-Steeley, Patricia, 2003. "The trading mechanism, cross listed stocks: a comparison of the Paris Bourse and SEAQ-International," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 13(4), pages 401-417, October.
    8. Brown, James R. & Martinsson, Gustav & Petersen, Bruce C., 2012. "Do financing constraints matter for R&D?," European Economic Review, Elsevier, vol. 56(8), pages 1512-1529.
    9. Henke, Harald, 2006. "When continuous trading becomes continuous: The impact of institutional trading on the continuous trading system of the Warsaw Stock Exchange," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(1), pages 110-132, February.
    10. Avner Kalay & Li Wei & Avi Wohl, 2002. "Continuous Trading or Call Auctions: Revealed Preferences of Investors at the Tel Aviv Stock Exchange," Journal of Finance, American Finance Association, vol. 57(1), pages 523-542, February.
    11. Karl A. Muller & Edward J. Riedl & Thorsten Sellhorn, 2008. "Consequences of Voluntary and Mandatory Fair Value Accounting: Evidence Surrounding IFRS Adoption in the EU Real Estate Industry," Harvard Business School Working Papers 09-033, Harvard Business School.
    12. Patricia Chelley Steeley & Brian Lucey, 2008. "The Microstructure of the Irish Stock Market," Multinational Finance Journal, Multinational Finance Journal, vol. 12(3-4), pages 279-311, September.
    13. Bris, Arturo & Cantale, Salvatore & Hrnjić, Emir & Nishiotis, George P., 2012. "The value of information in cross-listing," Journal of Corporate Finance, Elsevier, vol. 18(2), pages 207-220.
    14. Sofia B. Ramos, 2003. "Competition Between Stock Exchanges: A Survey," FAME Research Paper Series rp77, International Center for Financial Asset Management and Engineering.

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